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IRS issues Final Form 8971 & Instructions on How To Report the Final Estate Tax Value of a Property Transfered to Beneficiaries

February 15, 2016

For many years the IRS has had a problem verifying the basis of assets received by an heir from an estate. Within the last three or four years, the IRS has required brokerage houses and banks to supply it with the cost basis so that it could determine that the capital gain or loss on securities was correctly calculated. 

There was no such parallel form within the estate tax forum. Section 1014 of the IRC gives the heirs a basis equal to a value reported on an estate tax return. Later, if an heir sells the inherited property, there is no transitional method for the IRS to verify whether the basis claimed by the taxpayer on his personal tax return is correct.

Now, to rectify this situation, the IRS has created a form 8971 along with the schedule A which requires anyone who must file a form 706 or form 706NA to compel the executor/personal representative/administrator to file this form 8971+ schedule A with the Internal Revenue Service. Each heir/beneficiary is to be supplied with a copy of schedule A to inform him of his basis in the assets inherited from the estate. This filing requirement is limited to estates which must file a 706 or 706NA. The upshot of this is that estate tax returns filed merely to achieve portability are exempt from this filing requirement. 

The Form 8971 is due for all 706/706NA's filed after July 31, 2015. It must be filed by the executor with the IRS office in Cincinnati within 30 days of the filing of the 706. 


Failure to file a correct 8971 by the due date or to provide correct Schedules A to beneficiaries will result in penalties pursuant to sections 6721 and 6722 where reasonable cause is not demonstrated. 

Conceptually the idea is good but as usual, Congress has not thought through all the potential permutations created by this requirement. In a simple estate with few assets, it should certainly not pose a problem. How about an extremely large estate whose assets are being distributed to numerous heirs, sometimes around the world. It is rare that the administration of a an estate of a substantial volume is completed within 10 months or even 15 months of the date of death. What if there is litigation amongst the heirs as to who gets what? Such litigation can go on for a number of years. I am currently involved in an estate tax matter where the widow and the children of the first marriage have been in prolonged litigation for eight years. Until this litigation is resolved, no one knows who will inherit the US assets of the estate. 

What of heirs outside the United States who receive assets from the estate? The IRS requires such beneficiaries to obtain an SSN by filing form SS – 5.  How many heirs outside the United States who are not US taxpayers will bother or even care about obtaining an SSN?  The instructions also tell us that if at the time the 8971 is due it is not certain who will receive what, we are to list all the assets that each heir might receive on his schedule A and amended later. 

Even more vexatious is imposing this requirement on form 706NA filings. These decedents rarely have a US Social Security number. The first time one learns what this number might be is when they receive correspondence, generally a closing letter, from the IRS. In the interim there is no identification number to put on the 8971. Therefore, trying to track the assets from the estate to the beneficiaries can never be achieved. 

Like I said, conceptually this is a very good idea but I am afraid that the implementation by the tax preparers and the heirs is going to lead to a whole host of new problems which will become readily apparent as the numbers of these forms required to be filed increases over the years. Congress created this mess, let them figure out a way to simplify it or make it implementable.

Have a US Estate Tax Problem?
 


Estate Tax Problems Require
an Experienced Estate Tax Attorney
Contact the Tax Lawyers at
Marini & Associates, P.A.
 for a FREE Tax Consultation Contact US at
or Toll Free at 888-8TaxAid (888 882-9243).

Robert S. Blumenfeld  - 
 Estate Tax Counsel

Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.

While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.





  

 

Read more at: Tax Times blog

IRS “Dirty Dozen” Tax Scams for 2015

February 11, 2016

The Internal Revenue Service wrapped up the 2015 "Dirty Dozen" list of tax scams today with a warning to taxpayers about aggressive telephone scams continuing coast-to-coast during the early weeks of this year's filing season.

The aggressive, threatening phone calls from scam artists continue to be seen on a daily basis in states across the nation. The IRS urged taxpayers not give out money or personal financial information as a result of these phone calls or from emails claiming to be from the IRS.

Phone scams and email phishing schemes are among the "Dirty Dozen" tax scams the IRS highlighted, for the first time, on 12 straight business days from Jan. 22 to Feb. 6. The IRS has also set up a special section on IRS.gov highlighting these 12 schemes for taxpayers.

"We are doing everything we can to help taxpayers avoid scams as the tax season continues," said IRS Commissioner John Koskinen. "Whether it's a phone scam or scheme to steal a taxpayer's identity, there are simple steps to take to help stop these con artists. We urge taxpayers to visit IRS.gov for more information and to be wary of these dozen tax scams."

Illegal scams can lead to significant penalties and interest for taxpayers, as well as possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them. Taxpayers should remember that they are legally responsible for what is on their tax returns even if it is prepared by someone else. Make sure the preparer you hire is up to the task. For more see the Choosing a Tax Professional page.

For the first time, here is a recap of this year's "Dirty Dozen" scams:

  1. Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.
    (IR-2015-5) 
     
  2. Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will not send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise. Taxpayers should be wary of clicking on strange emails and websites. They may be scams to steal your personal information. (IR-2015-6)
     

     
  3. Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim. (IR-2015-7)
     

     
  4. Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns. (IR-2015-8)
     

     
  5. Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help people get their taxes in order. (IR-2015-09)
     
  6. Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups and churches in seeking victims. (IR-2015-12)
     
     
  7. Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally known organizations. (IR-2015-16)
     
     
  8. Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against. The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. Taxpayers are legally responsible for what is on their returns regardless of who prepares the returns. (IR-2015-18)
     
     
  9. Abusive Tax Shelters: Taxpayers should avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2015-19)
     
     
  10. Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return. (IR-2015-20)
  11. Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including use in farming. Consequently, the credit is not available to most taxpayers. But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds. (IR-2015-21)
      
  12. Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. (IR-2015-23)
 
Have a Tax Problem?
 


Contact the Tax Lawyers at
Marini & Associates, P.A.


 
 for a FREE Tax Consultation Contact US at 
www.TaxAid.us or www.TaxLaw.ms

or Toll Free at 888-8TaxAid (888 882-9243).

 

    Read more at: Tax Times blog

    Criminal Charges Filed Against Bank Julius Baer Settle With a Deferred Prosecution Agreement, Fine $547 Million &Guilty Pleas From 2 Julius Baer Bankers!

    February 8, 2016

    On Thursday, February 4, 2016 DoJ  announced the filing of criminal charges against Bank Julius Baer & Co. Ltd. (Julius Baer or the company), a financial institution headquartered in Zurich, Switzerland.   Julius Baer is charged with conspiring with many of its U.S. taxpayer-clients and others to help U.S. taxpayers hide billions of dollars in offshore accounts from the IRS and to evade U.S. taxes on the income earned in those accounts. 
     
    Acting Assistant Attorney General Ciraolo and U.S. Attorney Bharara also announced a deferred prosecution agreement with Julius Baer (the agreement) under which the company admits that it knowingly assisted many of its U.S. taxpayer-clients in evading their tax obligations under U.S. law.  The admissions are contained in a detailed Statement of Facts attached to the agreement.  The agreement requires Julius Baer to pay a total of $547 million by no later than Feb. 9, 2016, including through a parallel civil forfeiture action also filed on February 4, 2016 in the Southern District of New York.            

    The criminal charge is contained in an Information (the information) alleging one count of conspiracy to (1) defraud the IRS, (2) to file false federal income tax returns and (3) to evade federal income taxes.  If Julius Baer abides by all of the terms of the agreement, the government will defer prosecution on the Information for three years and then seek to dismiss the charges.

    In addition, two Julius Baer client advisers, Daniela Casadei and Fabio Frazzetto, pleaded guilty in Manhattan federal court today February 4, 2016 .   Casadei and Frazzetto were originally charged in 2011 and remained at large until Feb. 1, when they each made initial appearances before the Honorable Gabriel W. Gorenstein, U.S. Magistrate Judge for the Southern District of New York.

    Casadei and Frazzetto each pleaded guilty to an Information (collectively, with the Julius Baer information, the informations) before U.S. District Judge Laura Taylor Swain charging them with conspiring with U.S. taxpayer-clients and others to help U.S. taxpayers hide their assets in offshore accounts and to evade U.S. taxes on the income earned in those accounts.

    “Today’s resolution with Bank Julius Baer and
    the guilty pleas entered by Two Bank Employees reflect the department’s continued commitment to Hold Accountable those Financial Institutions who Conspired with U.S. taxpayers to Conceal Assets Abroad and Evade U.S. Tax Obligations,
    as well as those individuals responsible
    for such crimes,”
    said Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division. “

    The Offense Conduct
    From at least the 1990s through 2009, Julius Baer helped many of its U.S. taxpayer-clients evade their U.S. tax obligations, file false federal tax returns with the IRS and otherwise hide accounts held at Julius Baer from the IRS (hereinafter, undeclared accounts).  Julius Baer did so by opening and maintaining undeclared accounts for U.S. taxpayers and by allowing third-party asset managers to open undeclared accounts for U.S. taxpayers at Julius Baer.  Casadei and Frazzetto, bankers who worked as client advisers at Julius Baer, directly assisted various U.S. taxpayer-clients in maintaining undeclared accounts at Julius Baer in order to evade their obligations under U.S.  law.  At various times, Casadei, Frazzetto and others advised those U.S. taxpayer-clients that their accounts at Julius Baer would not be disclosed to the IRS because Julius Baer had a long tradition of bank secrecy and no longer had offices in the United States, making Julius Baer less vulnerable to pressure from U.S. law enforcement authorities than other Swiss banks with a presence in the United States. 
    In furtherance of the scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, Julius Baer undertook, among other actions, the following:

    • Entering into “code word agreements” with U.S. taxpayer-clients under which Julius Baer agreed not to identify the U.S. taxpayers by name within the bank or on bank documents, but rather to identify the U.S. taxpayers by code name or number, in order to reduce the risk that U.S. tax authorities would learn the identities of the U.S. taxpayers.
    • Opening and maintaining accounts for many U.S. taxpayer-clients held in the name of non-U.S. corporations, foundations, trusts, or other legal entities (collectively, structures) or non-U.S. relatives, thereby helping such U.S. taxpayers conceal their beneficial ownership of the accounts.

    Julius Baer was aware that many U.S. taxpayer-clients were maintaining undeclared accounts at Julius Baer in order to evade their U.S. tax obligations, in violation of U.S. law.  In internal Julius Baer correspondence, undeclared accounts held by U.S. taxpayers were at times referred to as “black money,” “non W-9,” “tax neutral,” “unofficial,” or “sensitive” accounts.
    Julius Baer also advised its bankers to take certain steps to avoid scrutiny from U.S. authorities when travelling to the United States, as well as steps to avoid U.S. law enforcement identifying Julius Baer clients.  In a memo entitled “U.S. Clients Do’s & Don’ts,” circulated internally in 2006, a Julius Baer employee provided client advisers with advice regarding travel to the United States, including:

    • “At Immigration . . . When asked by Officer what will you do while in the USA, say Business and of course some leisure, trying to take some time to enjoy your beautiful country. Proud government employees usually love this type of statement.One can throw in skydiving or another fun sport/activity.This tends to shift the questioning away from the business purpose to the ‘fun time’ part of the trip (carrying a tennis racket also puts the emphasis on “fun and games,” and not on business).”
    • In regard to communicating while in the U.S.:“Only use mobile phone[s] registered in and operating from Switzerland.Avoid phone calls from hotel to clients.It is recommended to purchase a telephone calling card from the post office, grocery stores, or electronic shops.This allows you to use practically any phone with no specific link left behind.The best is to pay for the calling card in cash.For ex: a 400 minutes local calling card costs less than $50, but the rates can vary.Most cards can also be used to call anywhere abroad.”

    At its high-water mark in 2007, Julius Baer had approximately $4.7 billion in assets under management relating to approximately 2,589 undeclared accounts held by U.S. taxpayer-clients.  From 2001 through 2011, Julius Baer earned approximately $87 million in profit on approximately $219 million gross revenues from its undeclared U.S. taxpayer accounts, including accounts held through structures.

    Casadei, 52, a Swiss citizen, and Frazzetto, 42, an Italian and Swiss citizen, each pleaded guilty to one count of conspiracy to defraud the IRS, to evade federal income taxes and to file false federal income tax returns.  Casadei and Frazzetto each face a statutory maximum sentence of five years in prison.  The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes only, as any sentences imposed on the defendants will be determined by the judge.

    Casadei and Frazzetto are each scheduled to be sentenced before Judge Swain on August 12, 2016.

     Do You Have Undeclared Income from
     a Swiss Bank?
     
     
    Is Your Name Being Handed Over to the IRS?
     
     Want to Know if the OVDP Program is Right for You?
    Contact the Tax Lawyers at 
    Marini& Associates, P.A.  
     
    for a FREE Tax Consultation
    at: www.TaxAid.us or www.TaxLaw.ms or
    Toll Free at 888-8TaxAid (888) 882-9243

    Read more at: Tax Times blog

    Swiss Bank's Leavers List Results in Former US Citizen Pleading Guilty to Tax Fraud

    February 4, 2016

    We previously posted DOJ Swiss Bank Program is Over After Netting $1.36 Billion! where we discussed that thee Department of Justice
    announced on January 27, 2016 that it reached its final non-prosecution agreement under Category 2 of the Swiss Bank Program, with HSZH Verwaltungs AG (HSZH). The department has executed agreements with 94 banks. Under the program, the swiss banks are required to:

    • Make a complete disclosure of their cross-border activities;
    • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
    • Cooperate in treaty requests for account information;
    • Provide detailed information as to other banks that transferred funds into secret accounts (Leaver List) or that accepted funds when secret accounts were closed;
    • Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and
    • Pay appropriate penalties. 

    This Leavers List caused Albert Cambata, a former U.S. citizen residing in Switzerland , to pleaded guilty today February 3, 2016 to one count of Filing a False Income Tax Return, according to the DoJ. 

     

    “U.S. taxpayers have been given ample opportunity to come forward, disclose their secret foreign accounts, and come into compliance,” said Acting Assistant Attorney General Ciraolo. 
     
    “Those individuals and entities who rolled the dice in the hope of remaining anonymous are facing the consequences ... and as today’s guilty plea indicates, clearly the department’s reach
    is well beyond Switzerland.” 

    According to court documents, in 2006, Albert Cambata, 61, established Dragonflyer Ltd., a Hong Kong corporate entity, with the assistance of a Swiss banker and a Swiss attorney.  Days later, he opened a financial account at Swiss Bank 1 in the name of Dragonflyer.  Although he was not listed on the opening documents as a director or an authorized signatory, Cambata was identified on another bank document as the beneficial owner of the Dragonflyer account.  That same year, Cambata received $12 million from Hummingbird Holdings Ltd., a Belizean company.  The $12 million originated from a Panamanian aviation management company called Cambata Aviation S.A. and was deposited to the Dragonflyer bank account at Swiss Bank 1 in November 2006.

    • On his 2007 and 2008 federal income tax returns, Cambata failed to report interest income earned on his Swiss financial account in the amounts of $77,298 and $206,408, respectively.  
    • In April 2008, Cambata caused the Swiss attorney to request that Swiss Bank 1 send five million Euros from the Swiss financial account to an account Cambata controlled at the Monaco branch of Swiss Bank 3.  
    • In June 2008, Cambata closed his financial account with Swiss Bank 1 in the name of Dragonflyer and moved the funds to an account he controlled at the Singapore branch of Swiss Bank 2. (Now on Swiss Leaver List which certain Swiss Banks are obligated to turn over to the IRS)
    • In 2012, Cambata, who has lived in Switzerland since 2007, went to the U.S. Embassy in Bratislava, Slovakia, to renounce his U.S. citizenship and informed the U.S. Department of State that he had acquired the nationality of St. Kitts and Nevis by virtue of naturalization.

    “IRS Criminal Investigation will continue to pursue those who do not pay the taxes they owe to the United States,”

    “Today’s plea is a reminder that we are committed to following the money trail across the globe and will not be deterred by the use of sophisticated international financial transactions that hide the real ownership of income taxable by the United States,” said Special Agent Thomas Jankowski of the IRS-Criminal Investigation, Washington, D.C. Field Office. 

     U.S. District Judge Claude Hilton of the Eastern District of Virginia set sentencing for April 15.  Cambata faces a statutory maximum sentence of 3 years in prison and a fine of up to $250,000.  As part of his plea agreement, Cambata agreed to pay $84,849 in restitution to the Internal Revenue Service (IRS).

    Do You Have Undeclared Income from a
     Swiss Bank?

     
     
    Is Your Name Being Handed Over to the IRS?
     
     Want to Know if the OVDP Program is Right for You?
    Contact the Tax Lawyers at 
    Marini& Associates, P.A.  
     
    for a FREE Tax Consultation
    at: www.TaxAid.us or www.TaxLaw.ms or
    Toll Free at 888-8TaxAid (888) 882-9243

     

    Read more at: Tax Times blog

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